Only 38,785 residential and business policies were in force in New York City as of Aug. 31; and only 8,129 Atlantic City, N.J., households or businesses had federal flood coverage, NFIP statistics show.

NFIP also could be forced to borrow money to pay claims. FEMA, the agency that oversees NFIP, has confirmed the flood program has only about $4 billion in cash and borrowing authority.

"This is going to be a very expensive event for the NFIP," said Robert Hartwig, economist and president of the industry-sponsored Insurance Information Institute. "It might come in second behind Katrina, a distant second. It's going to be billions of dollars, there's no question of that."

Part of the problem is NFIP rates do not adequately reflect the risk, Hartwig and others say. Hartwig said NFIP collects only $3.5 billion a year in premiums.

Robert Hunter, a former NFIP director now with the Consumer Federation of America, estimated only 15 to 25 percent of at-risk properties are insured for flood losses in the northeast.

Property owners often believe flooding will not happen to them, said Erwann Michel-Kerjan, managing director of the Wharton Risk Management and Decision Processes Center at the University of Pennsylvania.

"In a recent analysis supported by the National Science Foundation, we show that many people cancel their flood insurance policy after just three or four years," Michel-Kerjan said. "Short-term thinking ... they feel this is a bad investment.

"Most surprising, though, is that residents who have a federally backed mortgage and live in a flood plain, who are required to have insurance against flood, very often don't have the required insurance. Other people might also think they will receive governmental disaster relief, and this may also be a reason why some do not purchase insurance." Direct disaster payments for hurricane losses, however, are limited.

Hartwig said homeowners along outer shorelines are likely to have flood insurance. Many businesses, he said, would have secured flood coverage through the commercial market because of NFIP's policy limits. NFIP policy limits for a home are $250,000, and businesses are limited to $500,000 for a structure. Unlike private policies, NFIP provides no coverage for temporary living quarters while repairs are completed.

On the Gulf Coast after Katrina, policyholder attorneys tried to force private insurance to cover flood damage through lawsuits, reasoning the surge was wind-driven and should be part of the hurricane coverage private policies provide. Policyholders lost the argument -- not for the first time. Courts have long held that private insurance policies exclude flood damage, including storm surge.

"That was probably the last great battle of the American Revolution, if you will," said David Rossmiller, a Portland lawyer who specializes in insurance cases and has written extensively on coverage topics, including the Katrina litigation. "I just don't expect to see anything on that scale again. Really smart people tried a lot of ways to get around the flood exclusions, very ingenious ways. It almost universally didn't work."

After Katrina, the federal government provided $2 billion in grants to Mississippi homeowners who had damage from Katrina's storm surge but lived outside NFIP-mapped flood zones and had no flood insurance coverage. The state secured the money through earmarks, which no longer exist.

Part of the problem on the Mississippi Coast was outdated flood maps that did not reflect actual risks. Flood maps in some areas of the northeast have not been updated for years, either, although FEMA records show New York City's maps were updated in 2007.

Policyholders who suffered wind and flood damage also could have difficulty getting their homeowner-insurance claims paid for wind damage, particularly where structures were completely wiped away, leaving slabs or pilings. Those claims can turn into a costly and time-consuming battle of experts, as they did after Katrina, with engineers for insurance companies maintaining flooding caused the damage, and policyholders' experts arguing the losses were from wind.

"What happened in Hatteras (N.C.) is going to be different than what happened in New Jersey and what might have happened in New York, but there's still some pretty strong indication of winds events," said Florida attorney William F. "Chip" Merlin Jr., who was involved in Katrina's wind vs. water battles on behalf of policyholders. "We're getting phone calls with some questions, but you've got to give insurance companies time to decide whether they're going to pay. If they don't pay, I'll get real busy."

Rossmiller believes the wind vs. water debate will be much tamer in Sandy's wake. Sandy's winds simply packed less punch than Katrina's.

"The problem for most people is that there is very seldom going to be much money," Rossmiller said. "It's sad to say, but lawyering is a business, too. It's hard to get a lawyer to take your case when you're talking about $2,000 to $3,000 in damage from lost shingles."